China's inflation still under control … China's inflation is unlikely to reach the heady levels seen in 2006-2008 because the economy is showing no signs of overheating, prominent economist Fan Gang said in comments published on Sunday. Although food prices have been rising, the gains have not been that large compared to the 2006-2008 period, Fan, a former adviser to the People's Bank of China, told a forum in Shanghai, according to the People's Daily. "In 2006-2007, the domestic economy was overheating, but the current economic growth is more stable," said Fan, who heads the National Economic Research Institute, a Beijing think tank. – Reuters

Dominant Social Theme: Everything will be OK. Chinese inflation is under control after all.

Free-Market Analysis: The news from China is either worse or better, depending on whom you believe (see article excerpt above). Since we don't believe anything that comes from official Chinese sources, we may be apt to discount the views of those who speak on behalf of Chinese institutions. It smells a bit … promotional to us. A sub-dominant social theme. From our perspective, inflation is primarily a monetary matter, and once the money is circulating, the inflation is not to be "controlled."

If widgets were circulating you couldn't control them either, short of collecting them. Now it is true that central bankers are always muttering about sterilization, but we've never really seen it work. We did see Tall Paul Volcker virtually paralyze an economy once with high interest rates – and that certainly affected monetary circulation. If the ChiComs go that route, we figure they'll keep their three-million-man army kind of busy putting down various internal insurrections.

We keep returning to the Chinese inflation because if China goes down, any hope for a worldwide recovery becomes a lot less viable in our view. China's fall would echo far beyond China. First it would have a terrible impact on the various Asian countries in the areas; second, it would, sooner or later, have an impact on Japan as well, just as that beleaguered nation is starting to crawl out of its 25 year-old recession for the umpteenth time.

The ripples would spread of course. With nobody to buy its Treasuries, America's shaky monetary situation would erode rapidly. The federal government would probably cease bailing out states – and local and state municipalities would soon go bankrupt. So many people work for the state in America that any reduction in dollar purchases would expand joblessness considerably. Europe would not be immune either. Currently, the US is helping "backstop" Europe's increasing insolvency, but a sharp Chinese economic downturn would likely "put paid" to that process.

Are all these idle speculations? True, we've been writing about the specter of out-of-control Chinese inflation for several years now, but recently the world is catching up. We wrote just the other day about a respected hedge fund manager who has opened a fund dedicated to shorting China in all aspects. So convinced is he of China's inevitable implosion, that he is willing to sell short for up to five years to give the fund the maximum opportunity to realize profits.

Is such a fund headed in the wrong direction? Business Insider doesn't think so. Gus Lubin writes, "A Little More Inflation Could Set Off Widespread Panic In China … Chinese inflation — including up to 20% food-price inflation in a month — is reaching levels that threaten social stability, according to RBS. … There are a billion Chinese who … have already started to panic." This article can be seen on Prison Planet, along with an interesting feedback reply as follows from 'Wildcat":

It's why so many parts of the country become ghost-towns with empty factories and apartment blocks. They start by building factories and motorways – that attracts workers. Speculators build apartments – first to buy, then as demand goes up, then to rent. But anyone who works there wants to buy. So salaries have to rise. After salaries rise so much, and competition for employees intensifies, it only becomes profitable to relocate somewhere cheaper. Workers were shopping around for the best paid jobs using their mobile phones. Then the place becomes a ghost-town as the employers then the workers move away. The cycle has been continuing all the way inland.

It's like economic growth in the USA speeded up. The worst part of property construction is that the land most suitable for property development, is also the land most suitable for agriculture. So the more people that are moved into new developments, the less land there is to grow food. It's the same everywhere (read The Exploding Metropolis -a 1960′s publication giving a 50 year prediction of urban sprawl, property speculation, public transport, immigration and overcrowding).

Now we disagree in part with this analysis because it describing the RESULTS of inflation when the author seems to believe he is describing the cause. Nonetheless, it surely describes the havoc being wreaked. Too much money is sloshing around in the Chinese economy is continually distorting people's lives and jobs. Presumably at some point, the Chicom leadership finds this inflation intolerable and begins the process of raising interest rates to the point where the Chinese economy really begins to slow down.

This is where it gets difficult, of course. A slowing economy in a country that has just recently experienced prosperity after many years of great hardship is going to cause unrest in our view. The country already seems to be experiencing a continual low-level civil insurrection; and a serious economic slowdown will make it much worse. If farming is affected, there could be food riots. How does all this play out internationally? Some have suggested that domestic disturbances would be apt to make China more aggressively militarily. We wonder if it would not quickly push China in a more authoritarian direction, once again. But we wonder as well if China's eventual problems won't engender further global centralization.

We are not sure how it would occur, but we note that a supposed super wealthy group has offered to bail out UK. While the saga of Foundation X sounds more like the plot of a bad paperback novel than anything real, it still has backers. Among these backers is Lord James of Blackheath, who – speaking in the House of Lords on Nov 1, 2010 – explained that 'Foundation X' has the resources to "bail out" the UK. He even claimed that the funds were based on a gold reserve larger what is considered to be the world's total mined reserves.

Now we have no idea what Foundation X is, or if it exists, or if it is a hoax. But we are certain that an Anglo-American power elite exists and that it is composed of fabulously wealth banking interests. It would be no surprise if this group, or a similar one, had accumulated vast reserves of precious metals, especially if its members had controlled Western central banking for the past century.

Is Foundation X is merely a cover for the financial interests of the Anglo-American power elite? Sure it's a daffy question. But please note that today, as yesterday, leaders from around the world are meeting in Cancun Mexico to try to reignite the failed promotion of global warming. If the act of exhaling carbon dioxide (breathing, in other words) can be construed (by world leaders) as a taxable event, sure Foundation X can exist as well.

After Thoughts

So … China plunges into chaos, the world trembles and Foundation X indicates that it has the funds to recreate Bretton Woods, but on an international scale, including one common currency. People faced with "the end of the world" as they know it from the Americas, to Europe, to Asia are immediately enthusiastic. Would it then take one man, a leader – the face of Foundation X, shall we say – to inspire trust and "close the deal?" Just sayin' … (See other story, this issue – Goes the Dark Leader? …)